You Should Be Concerned

The International Monetary Fund convened a first-of-its-kind meeting with top economic officials from more than 20 nations to discuss global trade imbalances, a tentative step toward persuading policymakers to join a coordinated effort against a serious potential threat to the world economy.

Following that meeting, top officials from Group of Seven major industrial nations also met and issued a statement hailing the "strong global economic expansion" but highlighting the need for reducing the imbalances, which "requires participation by all regions." In a special statement on the imbalances, the G-7 appended a list of necessary actions, ranging from shrinking the budget deficit in the United States to allowing China's currency to rise to increasing investment in energy-related infrastructure in oil-producing countries.

The meetings and statements reflected a growing sense of urgency among some policymakers to develop an international strategy for dealing with the enormous trade gaps and corresponding flows of money across borders. The IMF has drawn intense criticism from many economists and some prominent officials for being too timid in addressing the problem.

The critics contend that the U.S. trade deficit, which soared to $723.6 billion last year, and the huge surpluses in Asia and many oil-producing nations could lead to an international financial crisis of the sort that the IMF was supposed to prevent when it was created more than 60 years ago. The fear is that as foreigners accumulate vast holdings of dollars from the goods they are selling to Americans, a sudden loss of confidence in the U.S. economy might spark a crash of the dollar and financial markets worldwide.

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